Three federal agencies (the Departments of Treasury, Labor, and Health and Human Services – the “Tri-Agencies”) released a fresh set of “Frequently Asked Questions” (FAQs) today about a range of ACA issues. On the health insurance front, they tackle questions related to employer notice requirements, the status of health reimbursement accounts (HRAs), and the treatment of “fixed indemnity” insurance policies (under a fixed indemnity policy, the insurer agrees to pay a set dollar amount and no more, i.e., $300 per day in the hospital). Here are a few highlights:

Employer Notice Requirements

The Patient Protection and Affordable Care Act (ACA) requires employers to provide newly hired employees with a written notice regarding the existence of the health insurance exchanges. And, if the employer is contributing less than 60% of the cost of the health plan premium, the employer must notify employees that they may be eligible for a premium tax credit through the exchange. At the same time, employers must also let employees know that if they buy a plan through the exchange, they may lose the value of the employer contribution to their premium.

While originally employers were given until March 1, 2013 to begin providing this notice to employees, the Department of Labor has pushed back this deadline to “late summer or fall” of 2013, in part to coordinate with the open enrollment periods for the health insurance exchanges (now called marketplaces).

Application of the Prohibition on Lifetime and Annual Dollar Limits to Health Reimbursement Arrangements (HRAs)

One of the ACA’s early market reforms prohibits insurers from imposing lifetime dollar limits on coverage, and restricts the use of annual dollar limits (banning them outright beginning in 2014). Questions quickly arose, however, over the application of these new consumer protections to health reimbursement arrangements (HRAs), which are employer-based plans that typically allow an employer to reimburse an employee’s medical expenses up to a certain amount, with unused amounts allowed to roll over to help defray medical expenses in future years.

The Administration addressed this issue by distinguishing between HRAs that are part of a comprehensive employer-based health plan and those that are “stand alone.” The Administration concluded that those HRAs that are part of a comprehensive health benefit plan do not need to comply with the lifetime and annual limit requirements. A stand-alone HRA would be considered a group health plan with a maximum annual dollar limit, and therefore violate the prohibition on annual dollar limits in the ACA.

With this latest round of FAQs, the Administration has answered some additional questions about the treatment of HRAs, including the following:

• HRA used to buy individual market coverage. If an employer offers their employees an HRA to buy individual market insurance, the Tri-Agencies have determined that the HRA would not be considered part of a group health benefit plan, and therefore would violate the prohibition on lifetime and annual dollar limits.
• Employee doesn’t enroll in the employer’s plan. The Tri-Agencies have determined that an HRA can only be considered part of an employer’s benefit plan if the employee receiving the HRA is actually enrolled in the employer’s coverage plan.

Regulation of Fixed Indemnity Insurance

Federal law (and most states) does not consider fixed indemnity insurance to be traditional medical insurance.  Historically, they have been considered income replacement policies, to help compensate people for time out of work. These policies are considered “excepted benefits” under the Public Health Service Act, and exempted from the consumer protections in the ACA that apply to traditional insurance. In this set of FAQs, the Tri-Agencies note that they have seen a “significant increase” in the number of policies being marketed and sold as fixed indemnity coverage.

Apparently, some insurers are labeling their products as “fixed indemnity” to get around the new consumer protection standards, but to the consumers buying them they resemble traditional insurance. In these FAQs, the Tri-Agencies attempt to limit this practice by clarifying that, to be considered fixed indemnity, the insurance must pay a fixed dollar amount per day (or per other period), regardless of the amount the service or visit actually cost the patient.

The Tri-Agencies make clear that products that actually pay for specified clinical items and services, such as doctor visits, surgery, and prescription drugs, cannot be considered fixed indemnity. The FAQs say: “When a policy pays on a per-service basis as opposed to on a per-period basis, it is in practice a form of health coverage instead of an income replacement policy. Accordingly, it does not meet the conditions for excepted benefits.” As a result, these policies must comply with the consumer protections in federal law.

Stay tuned to CHIRblog for more updates on ACA implementation and the latest in federal guidance!